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Milk could cost $7 a gallon if Congress fails to act

Lacking new farm legislation, the prices of milk, cheese and ice cream could double or triple next year.

Wire

Dec 30, 2012

Lost in the "fiscal cliff" debate is debate about a new farm bill.

Lacking new farm legislation, some people think the prices of milk, cheese and ice cream will double or triple next year. And given the fiscal-cliff standoff, Washington isn't inspiring a lot of confidence in its ability to address such pocketbook issues.

But others say that even if legislators fail to act on the farm bill, a spike in dairy prices next year is highly unlikely.

On Tuesday, federal price supports for milk revert to standards set in 1949. That's because the farm bill and its modern price supports were allowed to expire this year. Based on the decades-old law, a gallon of milk that sells for $3.50 today should almost double to about $7.

Higher prices would be based on what dairy-farm production costs were in 1949, when milk production was almost all done by hand. Because of adjustments for inflation and other technical formulas, the government would be forced by law to buy milk at roughly twice the current market prices to maintain a stable milk market.

"Does that mean that milk prices on Jan. 1 will jump immediately? Absolutely not," said Cameron Thraen, associate professor of dairy markets and policy at Ohio State University and an economist for OSU Extension.

During a Dec. 20 conference call, Agriculture Secretary Tom Vilsack told reporters, "The first thing that will happen is the United States government will get in the business of providing additional support and will likely end up purchasing a great deal of product."

The government would use taxpayer money to buy the three milk products mandated by the decades-old law -- cheddar cheese, butter and nonfat dry milk. These purchases would lower supplies of these products and push up their prices, along with the price of milk.

"That will ultimately translate into importers being very interested in entering our market," Vilsack said. "It will trigger, at some point in time, more-costly milk products in grocery stores."

Should consumers be concerned? "No, because there are always substantial inventory available," Thraen said. "Product that's already been bought and sitting on the shelves in the grocery store, those prices aren't going to double and triple."

What about dairy farmers?

"Everyone's in limbo," said Chuck Moellendick, a dairy farmer in Pleasantville in Fairfield County. "We do not know what will happen."

At first, farmers would experience a financial windfall, as they rush to sell dairy products to the government at higher prices than those they would get on the commercial market. But that would come at a price.

Farmers " recognize that this could create such chaos in their markets, it could take them years to recover," Thraen said.

And the dairy industry? Chaos in dairy markets could undo decades of productivity improvements by dairy farmers and product innovations by processors.

"It's a very delicate balance to make sure we have the right system in place to ensure the supply of milk is readily available," said Scott Higgins, CEO of the Ohio Dairy Producers Association.

Drastically higher milk prices also could curtail dairy exports, which have grown to 13 percent of U.S. milk production.

"We have been growing our dairy industry in the United States over the last couple of decades primarily through exports," said Jerry Slominski, senior vice president for legislative affairs at the International Dairy Foods Association.

"Fluid milk consumption has been declining. Increasing the price on fluid milk would exacerbate that decline," Slominski said. And if milk prices rose to meet 1949 levels, milk imports would flood the U.S. market, reversing the exporting trend, he said.

Warren Taylor, owner of Snowville Creamery in Pomeroy, a small, independent dairy that processes and distributes milk for local farmers, sees no likelihood of a spike in milk prices. The nation's largest milk processors are powerful and wouldn't pay farmers double or triple the price for their milk, Taylor said. Instead, dairy farmers, milk processors and consumers are counting on Congress to solve the looming problem by extending the recently expired farm bill or tucking a new farm bill into another piece of legislation that is sure to be approved by legislators.

"I'm anticipating Congress doing the right thing," Higgins said.

And even if legislators fail to take up a farm bill early next year, it could take months for the Agriculture Department to develop a program to buy milk products to raise prices.

But if that program starts, taxpayers should be concerned.

"You're telling me as a taxpayer, I'm going to have to buy and store butter for $4 a pound?" said Thraen, the economist.

Butter now is trading at $1.60 a pound on the wholesale market. "No, thank you," he said.

Comments

"Price supports": Which means that U.S. taxpayers are supplementing production costs with federal dollars through taxation and borrowing, thus hiding the "actual" costs.

TheGravyWhisperer

Fri, 12/28/2012 - 12:06pm

...exactly, contango, let the free market work and competition will drop the prices naturally...

truckin

Fri, 12/28/2012 - 12:54pm

Let the price rise. & No federal gov. supplementing. That "should" mean less need to tax my wages so much, more money in my pocket to purchase said milk at said price..?? rite? Even wash.. or are the words, coulda woulda shoulda come to mind.

methodman

Fri, 12/28/2012 - 1:22pm

Good story. Induce fear and they will consume. I'll buy a cow, or goat. Hell maybe start growing almonds.

Otis B. Driftwood

Fri, 12/28/2012 - 2:38pm

Two consecutive years of drought conditions have forced liquidation in this year’s dairy cow slaughter. Dairy cow slaughter in July was 45,000 head, rising to 85,000 head in October and has been well over year-earlier levels for most of 2012. 100,000 head will exit the dairy herd by the end of 2014.

This is really to drive the milk price up and put it at a more profitable level.

IT HAS NOTHING TO DO WITH THE FISCAL CLIFF. You fools will believe anything the media feeds you.

cjbell019

Fri, 12/28/2012 - 4:50pm

My bowels bound up at the thought of any dairy product.

KURTje

Fri, 12/28/2012 - 6:28pm

Bring it

Centauri

Fri, 12/28/2012 - 7:44pm

Bring on the high milk prices. Bring on the hemp milk.

http://www.drweil.com/drw/u/QAA4...
"Hemp milk is made from the seeds of the edible part of the same plant (Cannabis sativa L) used to make marijuana. The seeds or "nuts" are used for making oil, protein powder and now, milk."

Too many of you idiots know nothing about the Farm Market. "Price supports" do not merely subsidize production. They stabaliize prices and prevent wild swings in the cost of most food products. Stable prices prevents hoarding and shortages. It reduces chaos in the farm markets. Of course, the GOP doesn't care about that. They just want to scare us all so they can reduce taxes for their wealthy friends. Contrary to popular opinion, overall taxes are lower now than they have been since the 1950's.

hit the road jack

Sat, 12/29/2012 - 2:27pm

What country are you from? sure as hell not the U.S.! they have so many new taxes it would make the socialists of the 30's roll in their grave like a hog on a spit!

jas

Sun, 12/30/2012 - 1:33pm

Yes, more things are taxed but the total tax bite is less than it's been since the 1950's. Isn't it more fair to tax more things instead of relying only on sales taxes, real estate taxes, and taxes on wages and salaries? It's harder to avoid paying your fair share of taxes.

hit the road jack

Sun, 12/30/2012 - 5:07pm

Well just who do you think pays all these taxes on EVERYTHING? its the working guy trying to better themselves,by the time you get done paying all the fees and taxes you just want to bang your head against the wall and wonder what the hell is the matter with me,work your ass off and your no farther ahead at the end of the year than you were at the begining of the year,of course no one is supposed to make any money anymore,they want it before you make it,if you don't believe me just ask a small business person,been there,done that.

Contango

Sat, 12/29/2012 - 10:45am

And while people were goin' hungry in the name of "price supports," good ol' FDR had farmers dumping milk and killing and burying hogs.

Milk consumption is at record lows in this country.

"Forget The 'Dairy Cliff' — People Have Been Drinking Less And Less Milk For The Last 30 Years":

Govt. interference in markets causes malinvestments, leading to instability.

Mr. Market will ALWAYS ultimately prevail.

deertracker

Sat, 12/29/2012 - 12:03pm

I hate milk so Who Cares?

dontcare

Sat, 12/29/2012 - 2:24pm

I think farmers are great, however it is hypocritical when a conservative complains about socialism when government subsidies are being given to farmers.

jas

Sun, 12/30/2012 - 1:37pm

It's also hypocritacal for Conservatives to complain about socialism when so many tax breaks and incentives are given to corporations to encourage certain business activities. That's how the National Socialists did it in the 1930's. Big Busines and Government working hand in fist to suppress the economic power of the middle class.

The avg. federal bureaucrat has better wages and health and retirement benefits than the working serf will EVER see - they are not your friend.

hit the road jack

Sat, 12/29/2012 - 2:30pm

Anyone remember the guy who could not quit flapping his gums about going over these subsidies and eliminating them one by one? well,here's a prime example of their laziness and not giving a $hit!

The Big Dog's back

Sat, 12/29/2012 - 4:39pm

More Repub scare tactics.

hit the road jack

Sat, 12/29/2012 - 7:58pm

What a stupid statement! Its obvious you voted for the I'm dumber than dirt club and just don't give a damn about anything other than my free welfare or unemployment check.

44846GWP

Sat, 12/29/2012 - 4:41pm

Drink soy milk or Almond milk, its good and good for you. Boycott milk and save the life of a cow.

Contango

Sun, 12/30/2012 - 7:23am

@ Zippy aka 44846GWP:

You still eat beef and donate to PETA don't you?

ole45mag

Mon, 12/31/2012 - 4:46pm

Or they can get off the internet, shut off the computer, thereby save electricity and save all kinds of things on this earth. Or, if they do save the cows and get them to coach the Monroeville basketball teams, both girls and boys.

Fromthe419

Sat, 12/29/2012 - 11:35pm

I say go over the cliff, until we address the spending problems we have, I'll sacrifice my tax rate for the short term. Stop the milk subsidy and give me some more money in my paycheck and I'll deal with it. Drop all subsidies and I'll deal with it, if the they cut spending and I get more in my take home pay, I'll figure it out. Let the free market determine price and I'll gladly go along with what ever it brings

Contango

Sun, 12/30/2012 - 7:21am

Read the article: Congress is so busy with the "fecal cliff" negotiations, that they are ignoring this farm subsidy extension.

Regarding the "fecal cliff": Taxes would need to be raised on EVERYONE to confiscatory levels in order to keep up with spending. The U.S. continues to have a spending problem, not a taxing problem.

If we go over the "fecal cliff," odds are good for an economic recession.

ladydye_5

Sun, 12/30/2012 - 4:38pm

The spending IS what needs to be controlled. MANY here at home in the USA are going without.....cutting back till it HURTS....losing jobs and losing homes....why not QUIT SPENDING/SENDING money overseas to other countries to take care of THEIR people? Charity starts at HOME. Take care of OUR homeless, take care of OUR hungry children, take care of OUR veterans, take care of OUR poor. I know for a fact that our home, our checkbook, our budget cannot handle anymore cut backs or taxes.
Many do not drink milk anymore, they drink POP, they drink bottled water, they drink diet drink mixes. A gallon of milk does NOT sit on tables for dinner anymore, it was replace with a 2lt of Coke. The price of milk will affect MANY MORE products than one thinks...the price of milk, ice cream, cheese, yogurt, greek yogurt, sour cream, cottage cheese, coffee creamer, and those are just in the dairy case. The government wants us to be healthier but do NOTHING to help us achieve it. The price of groceries is out of control and only getting worse!